ECB’s Coeuré: Broad Consensus on ECB Council That More Stimulus Needed: WSJ

Brian Blackstone and Todd Buell had an exclusive interview with European Central Bank executive board member Benoît Coeuré on Dec. 17. As the central bank grapples with a weak economy and ultralow inflation, Mr. Coeuré sent one of the clearest signals to date that the ECB is poised to embark on large-scale asset purchases centered on government bonds early next year. Mr. Coeuré added there’s broad consensus in the governing council that more stimulus is needed but the ECB just needs to find the best way to design those stimulus.

The story as it appeared on Dow Jones:
Dec. 17, 2014, 10:03 AM EST: ECB’s Coeure: Broad Consensus on ECB Council That More Stimulus Needed: WSJ

10:18 AM EST: Coeure: Expects ECB Minutes to Be Published Four Weeks After Policy Meetings: WSJ

10:19 AM EST: ECB’s Coeure Comments in Wall Street Journal Interview

By Brian Blackstone and Todd Buell

FRANKFURT–European Central Bank executive board member Benoît Coeuré sent one of the clearest signals to date that the ECB is poised to embark on large-scale asset purchases centered on government bonds early next year, as the bank grapples with a weak economy and ultralow inflation.

In an interview with The Wall Street Journal, Mr. Coeuré also provided details of the ECB’s plans to publish minutes of its policy meetings starting next year, saying the accounts should be released four weeks after meetings and will be “substantial” in providing the balance of views among officials.

“I see a broad consensus around the table in the governing council that we need to do more” to raise inflation and boost the economy, Mr. Coeuré said in the interview, conducted late on Tuesday at his office in the ECB’s new skyscraper headquarters in Frankfurt.

Other officials, including ECB President Mario Draghi, have signaled that the bank is ready to embark on broad-based asset purchases, known as quantitative easing, if needed to keep inflation from staying significantly below the ECB’s 2% target for too long.

Mr. Coeuré’s comments were noteworthy in that they suggest the threshold for action has now largely been met, and that officials have moved to the design phase of a quantitative-easing program. Central banks in the U.S., U.K. and Japan have used this policy extensively to reduce long-term interest rates.

“It’s not that much of a question on whether we should do something, but more a discussion on the best way to do it,” he said. “If we want to do more we obviously have to reach out to market segments where there is more liquidity and that is why the government bond market is the baseline option, which doesn’t necessarily mean we would only buy government bonds.”

His comments underscored the divergent paths being taken by major central banks. The Federal Reserve and Bank of England are expected by analysts to start raising interest rates next year. However, the ECB’s easy-money policies will stay in place for the foreseeable future, Mr. Coeure said. The “logical market outcome” of these trends is that the euro’s exchange rate should adjust further, he said, adding, “I don’t want to pass a judgment on how much it can adjust or how much it should adjust.”

Mr. Draghi said after the ECB’s last meeting on Dec. 4 that officials would reassess their policies in early 2015. Expectations for further action have intensified amid plunging oil prices, which economists expect to pull eurozone consumer prices into negative territory on an annual basis.

“What has changed is the confirmation of low growth and low inflation, and the oil shock which is obviously new,” Mr. Coeuré said.

He declined to say whether the ECB would have enough information when it meets on Jan. 22 to pull the trigger on QE. “Ideally you would need enough time to assess what exactly is the pass-through from lower oil prices to core inflation and to know more about the second-round effects. On the other hand, we don’t want to be behind the curve and act too late,” he said.

If the ECB does embark on QE it would likely be despite the objections of one of its most powerful members, German central bank head Jens Weidmann, who has signaled fierce resistance to the program, partly on the grounds that it may weaken pressure on European governments to shrink debt and reform their economies.

Mr. Coeuré appeared sympathetic to these concerns. “I absolutely agree that very low sovereign yields weaken the incentives to run sound fiscal policies,” he said. The answer, he said, is to enforce budget rules set by the European Union, which is outside the ECB’s remit.

But he stressed that the ECB can’t turn a blind eye to low inflation, which was 0.3% on an annual basis last month. “We have both a moral and legal responsibility to deliver on our mandate,” Mr. Coeuré said.

He played down concerns that the ECB would only be able to move forward with QE over a considerable number of objections from the bank’s 24-member executive board. He offered the ECB’s conditional bond purchase plan in 2012, known as Outright Monetary Transactions, as an example of how the ECB could reach a strong majority in favor of QE.

Mr. Weidmann was the sole dissenter on the OMT program, which hasn’t been used and has been credited with easing euro breakup fears.

“We were able to design [OMT] the right way because we took concerns on board, and we are now going through exactly the same process,” Mr. Coeuré said. “The more governors standing by this new instrument, the safer you feel that the pros and cons have been weighed in the right way.”

Turning to the minutes of ECB meetings, Mr. Coeuré said the description of the policy discussion won’t include individual board members’ arguments, and that officials haven’t decided yet whether to keep votes anonymous.

Write to Brian Blackstone at brian.blackstone@wsj.com and Todd Buell at todd.buell@wsj.com.

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